When generating journals for a pay run, can you include leave liabilities?
All employees deserve a holiday from time to time, but they don’t tend to use all of their accrued leave in one go (unless, like me, they decided to take 2 big trips to Europe this year and have no accrued leave remaining – sob).
If an employee were to leave their role, some leave balances would need to be paid out to them upon termination – these owed leave types would be classed as leave liabilities.
Many businesses like to have their employees’ up to date leave liabilities reflected in dollars in their balance sheet or general ledger.
Why would an employer want to see this?
There a number of reasons why businesses would want the monetary value of leave liabilities reflected in their balance sheet each pay run:
- To know the amount of leave required to be paid out to an employee if they leave, without having to calculate it manually.
- When businesses sell, new owners want to look at liabilities as it’s an expense to the business. It’s quite common for these liabilities to be deducted off the cost of the sale or negotiated in some way so knowing this figure simplifies the contract negotiation.
Basically, it’s a cost to the business that they should be aware of.
How do employers keep up to date on leave liabilities?
Those using an accrual based accounting system may have to manually calculate and journal these figures into their balance sheet to keep them up to date. But not when integrated with KeyPay!
KeyPay supports posting journal entries of leave accrued, and allows you to automate this process, by configuring the Chart of Accounts to map leave liability and expense GL accounts. Once mapped, your payroll journals will then include the associated cost of any leave liabilities on a per pay run basis.
Examples of leave liabilities include (but are not limited to):
- Annual leave;
- Time in Lieu/RDO;
- Long Service Leave
What if my accounting platform does not integrate directly with KeyPay?
A list of journal service KeyPay connects to can are listed here. If your accounting platform is not on the list it doesn’t matter. Choosing the file export option and setting up your chart of accounts will still allow you to track leave liabilities. Exporting the journal after each pay run will still allow users to import into their accounting platform or manually enter the data so that you’re still afforded the benefits of tracking these liabilities.
For more information on how to set up the provision for leave liabilities in your payroll journey using KeyPay, check out the support article.